ICONOMI is the latest crypto-token ICO to have hit the marketplace, and as of this writing, has raised over $4.5 million. By any standards, it is one of the highest grossing ICOs. It has performed impressively even in a hot market where too many ICOs are chasing investment Bitcoins. But it seems like a lot of people who are investing in the ICONOMI ICO don’t fully understand the ideas behind the project. This post will help you understand what ICONOMI’s goal and vision is for the project, and how investors could benefit. It is an explanation of how ICONOMI funds work.
The idea behind ICONOMI
In one sentence, ICONOMI is a crypto version of a fund. ICONOMI is slated to launch with two funds:
- Coin Traded Fund (CTF, also ICONOMI.INDEX): This is similar to an ETF in the real world. It will track a basket of securities to be determined in the future. It is a passive investment. Ideal for those investors who are looking to put a small percentage of their money in cryptocurrency as an asset class, and those that don’t follow the daily price fluctuations of the crypto markets.
- Coin Managed Fund (CMF also ICONOMI.PERFORMANCE): This is similar to a classical hedge fund. You will trust an investment manager with your money and your profits are tied to the performance of this fund manager. In an ideal world, the returns will be superior to CTF because of manager’s skill, but this is obviously an additional risk you’re taking and there is no such guarantee. It is more of a ‘strategic investment’ in the crypto space. This is suited for investors that are more active in crypto trading and can judge performance and trading decisions themselves through their prior knowledge.
That’s all there is to it. There is no cryptocurrency yet that has managed to be a fund of other cryptocurrencies. The vision of ICONOMI, however, stretches beyond the initial launch of the 2 flagship funds. It aims to be an open fund platform, which means if you trust me as a crypto-trader, then I’ll be able to launch my own fund on their platform, and people who want to buy my fund can do so. The fees will be split between ICONOMI and the trader (me in this example).
Risks and Uncertainties
The first type of risk is regulatory. It is unclear if they clear the Howey Test in the US or not. Especially after The DAO fiasco, regulatory risk has become more common (thanks for spoiling it for everyone else, Slock.it team).
Also, with any project that has custody of funds, there is a security risk no matter how many precautions are taken. We have seen this time and again that even some very good and secure systems can be hacked in this space.
However, the real uncertainty with investor returns and adoption of the platform will come from the nitty-gritty details. How will the managers be compensated? Will there be a returns cliff? Will managers have to ‘earn back’ their keep when they underperform? How are returns calculated? What prices are used? Is there enough liquidity in the market to determine valuation? If not, what valuation models will be used to value holdings? What opportunities are present for traders to indulge in arbitrage to ensure CTF tracks its NAV?
These are many questions that will determine the success or failure of the project.
How to think about ICONOMI as an investor?
As an investor, you need to do all the research, read the whitepaper, and do your due diligence. When it comes to terms and specific details, make sure you understand the risks and uncertainties that I outlined above, make different scenarios and do a scenario analysis and then do a risk-return analysis to determine if it is worth the risk or not.
You can check out the ICO here.
Photo Credit: daddyboskeazy